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there is a bull market somewhere. promise to find it just good evening. everyone. i'm larry kudlow. this is "the kudlow report." a developing story tonight. four democratic senators send a letter to president obama urging him to do whatever he can to sidestep congress and increase the debt ceiling. but he cannot legally or constitutionally do that. john boehner reacts by saying washington must stop spending money it doesn't have. speaking of sequester spending cuts, defense department is gearing up, so is homeland security. and the tsa. did you get your paycheck today? notice something missing? the payroll tax holiday is over. will this middle class tax hike

really damage the economy? "the kudlow report" begins right now. first up tonight, a developing story. four democratic senators sent a letter to president obama late this afternoon. they want him to use any means necessary to raise the debt ceiling without republican house spending cuts. that's right. cnbc's eamon javers has the details. >> reporter: let me get right to exactly what that quartet of senators said. in their letter to president obama which was viewed widely as shoring up his left flank in the political debate over the debt ceiling. what they wrote was "we believe you must be willing to take any lawful steps to ensure that america does not break its promises and trigger a global economic crisis without congressional approval, if necessary." now the signers of this letter were harry reid, dick durbin,

chuck schumer and patty murray. speaker boehner said "senate democrats cannot ignore their responsibilities for political convenience. and the american people will not tolerate an increase in the debt limit without spending cuts and reforms." larry, let me tell you what i think is going on here. i think these democrats are trying to send a signal both to the white house but also to republicans involved in this debate that they would like to see or be comfortable with the president going with what they call the constitutional option, which is challenging the debt ceiling itself on constitutional grounds based on the 14th amendment to the constitution which says that the debt of the united states shall be respected. so their argument would be in that case that it is simply unconstitutional to have a debt ceiling at all. and they say that congress -- the president rather would be able to do that without invoking congress or meeting congress in any way. >> section 4, 14th amendment,

validity of the public debt of the united states shall not be questioned. that's the exact wording. doesn't say increased. it says it cannot be questioned. but then law, constitutional law scholars are saying to everybody, it is constitutional to have the congress make the debt changes. they are allowed to do that. the 14th amendment has nothing to do with that. in fact most of the 14th amendment, due process, equal protection and citizenship clause is about giving african-americans the right to vote, live and prosper in the united states. >> right. that's right. and clearly if the president was to do what they call the constitutional option that the democrats are raising here as a possibility, it would go into the courts, it would be challenged immediately and you'd see it go all the way up to the supreme court very very quickly. but quickly in supreme court time is not quickly in washington political time, which means that they could somehow get past the debt ceiling using that option and then fight it out in the courts in the months and maybe years to come.

>> all right. eamon, thanks very much. let's bring in cnbc contributor keith boykin. we have kathryn mangy ward, manager editor for reason magazine. jim pethakukas, let me go to you first. this sounds like a bunch of democrats saying we don't want any spending cuts, entitlement cuts, nothing. just pass the debt ceiling. no spending. >> do whatever it takes. apparently the hurdle is some legality. not whether it's a good idea, not whether it calls into question the independence of the central bank, the independence of whether the treasury will now have the new power to print money whatever it has. as long as it's legal. let me tell you. of all these options, the magic coin option, the 14th amendment may be the worst option. it will be challenged in court. the court moves forward. you end up with two classes of u.s. debt, one which people have

a lot of confidence in, then this different class of debt which was created under this who knows what new legal authority that they found. >> this is the point. let me go right. the i.o.u. this is interesting. edward klinebard, former chief of staff at the congressional joint committee on taxation is now teaching law at the university of southern california. now, he says that congress has constitutional authority to raise the debt and only the congress. but he has his own banana republic plan where he wants to issue these new i.o.u.s which will never conceivably work. but that's his way of getting around the debt ceiling. what do you think of that? >> i think the whole thing is the race to the bottom of ridiculous new plans. to be fair, the trillion dollar coin has taken it. nothing is going to be sillier than that. >> platinum. platinum. but have you ever seen those nature shows where the birds hop around around fluff up their feathers to intimidate a rival or aattract a mate? i hope and believe that is what

the president and congress are doing right now. trying to be bigger and bigger and more threatening. in the end they're going to make a deal. they always make a deal. >> keith boynkin, this is argentina type stuff. this is banana republic type stuff. democrats don't want to cut spending. they're trying to come up with phony arguments. only boehner wants the one for one. this law professor has got this i.o.u. it did work for a spell in california. but he says that the congress has the constitutional authority to raise the debt. what is going on here? and -- >> do you think it's a good idea, larry, for the united states government not to pay its debt? do you think bond holders want that? >> no one's saying that. >> what's banana republic like is for the united states government not to pate debt that it's already racked up. that's exactly what's going on. >> what's banana republic like is to create your own money with this platinum stone, this platinum whatever it is. that's the argentine banana

republic. >> arguably we can print our own money anyway. the real issue is the united states government and signed by the president has already passed bills which authorize the debt that we've already created. the question is do we pay the debt that we've already racked up. that's what the debt ceiling is all about. and the irony is the 14th amendment argument actually could work both ways. arguably the debt ceiling itself is unconstitutional. because it questions the validity of the national debt. the debt that congress has already racked up. >> no. it questions the appropriateness of raising the debt. that's the issue. jimmy, i want to go here. is there anybody on the republican side who is saying we want to default on the debt? is there anybody on the republican side that says we're not going to raise the debt ceiling? >> no. nobody thinks that's a good idea to default on the debt. going past the debt ceiling i think that's not a great idea. but theoretically there's enough money coming in to pay the debt.

you could pay people getting social security. that's really not the point. the point is whether there is at some point are there -- i think there should be actual spending cuts. listen. cut spending today. cut spending tomorrow. but cut spending sometime somewhere. but we're not doing that. >> kathryn, that's the issue. that is the issue. boehner has said one for one. that's his line last year. he got it. although they didn't make the sequester yet. that's all. one for one. why is this wrong? we never want to cut spending. we want platinum stones, platinum cards, platinum gems. we want phony i.o.u.s that will be cashed in so people can go to strip clubs. and now you want to use the 14th amendment which is really using it in vain. why don't we just cut spending one for one as jim mentioned? >> i think that this is a great example of the sort of horrifying prospect that's often held up as goes california so

goes the nation. california can't cut its spending. they have backed themself noose -- themselves into a corner. we're doing the same thing. it is going to take gumption to get this done. republicans aren't saying no deal no way no how. they're saying no deal unless you cut some of the spending, reform entitlements. that is not an unreasonable request. >> this exposes the hypocrisy of the whole spending cut lie that republicans have been spewing. >> they are full of it on spending. i will agree with you on that. they believe it a little bit more than the democrats. that's all you need to have a fight. >> i think the republicans selectively believe it. the reality is if you really cared about cutting spending why not go over the fiscal cliff? that cuts trillions of dollars in spending. but republicans are afraid to cut spending. they want to use this as an issue, to attack the democrats but they're afraid to lay out because they know the majority of the spending will have to come from medicare and social security. not what the american people

really want. >> what party actually has put out a long term spending plan showing how you reform these programs, what you would take spending down to as a share of g.d.p., how you would pay for it. you may not like that plan. you may not like paul ryan's plan very much. >> american people don't like that plan. >> but the administration's plan? they have a short term plan. they won't specify. the outgoing treasury secretary, tim geithner said, we have no plan. and as geithner always says, plan beats no plan. you have no plan. >> and the american people have no idea what they're talking about on this stuff. >> that i agree with. we're sending conflicting messages. >> it doesn't matter what people think about cutting spending. we have to. >> the polling data show by 75% the american people want spending cuts. i will say this. i may be wrong and you all may be right. but i think the g.o.p. is now migrating towards the spending sequester. including the defense and national security cuts. we're going to debate that in a few moments with general mccaffrey. but i think the gop is migrating

there. i think that is exactly the right thing to do. and it shows a little bit of courage. and i think this letter from the four senators today, keith, all it says is waw waw waw we don't want to cut spending. >> that's what john boehner says. interesting rates are low now, inflation is low now. we're still recovering from an economic crisis. this is not the time quite honestly to cut spending. this is the time to invest more. we need to deal with spending in the long term. >> cut long term spending. what's your long term spending cut plan? >> a proposal to cut long term spending. >> it never goes below historically high levels of gdp ever. >> the republicans aren't cutting much more than that, either. >> there is a plan. >> we're talking about a few percentage points here not making a huge bit of interest. the national debt is going to increase. nobody is talking about paying off the debt. [ overlapping speakers ] >> paul ryan's plan balances the budget and brings down the debt. >> when? >> you're going to stay with me.

we'll yell about this and scream about this and talk more about the -- i have all my homework on the 14th amendment. i'm so proud of myself. probably the only guy in the country that does this. keith, kathryn, jim, we're going to get back to you later in the show. hang with me. now here is a reality check on the gun control debate. even the strongest supporters of new bans on guns and ammo are realizing that changing the existing laws is going to be almost impossible. later in the show, it's the paycheck sticker shock across america tonight. the payroll tax holiday ends. you're stuck with the middle class tax hike. don't forget, folks. free market capitalism always the road to prosperity. that means permanently lower tax rates to generate growth. not temporary. permanently. i'm kudlow. we'll be right back. almost tastes like one of jack's cereals.

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are we close to reinstating the assault weapons ban? well, here's what the nra's president had to say about that today. >> are you willing to go out on a limb and predict that there will -- do you have the support

in congress to block any federal ban on assault weapons in the coming year? >> i do not think that there's going to be a ban on so-called assault weapons passed by the congress. >> all right. i'm now joined by pulitzer prize winning journalist and syndicated columnist cynthia mctucker and lenny mccallister of the urban radio network. both of you welcome to the program. cynthia, as a reagan conservative i think i'm on the wrong side of this issue. i want to limit the automatic guns and also want to limit the 100-bullet magazines that they hold. but i think that david keene whom i've known for decades is going to be right. none of this stuff is going to get through the congress. >> well, it may be that the ban on high capacity magazines has a better chance than the ban on actual assault weapons. but why not? why shouldn't we ban assault weapons? they were banned from 1994 to

2004 without any inconvenience to hunters, without any inconvenience to families who wanted to guarantee the safety of their homes. you don't need an assault weapon for either of those. so while i think congress may be skiddish and house republicans probably absolutely resistant, it's still a good idea. well, you know, lenny, go back to you. you look at kim strassel's article in the "wall street journal" today. i get about half the democrats are beholden to the national rifle association. it really is going to be hard to get any of this stuff through. do you have a different take? >> no. i think it's definitely going to be hard because people are used to take the nra money. they don't want to be seen as somebody that's trying to scale back the second amendment. i do look at that era from from '94 to 2004 period of time and look at the violence we still saw in urban america with some of the exact same weapons illegal at that point of time but still used. >> look i understand the

violence. but this period in the last couple years is unsurpassed with the mass killings. and i believe it has to do with these automatic or semiautomatic weapons. i don't see how you -- you and i could disagree about how to solve it. but we've never seen a bulge like this in schools, in colleges. >> it's getting worse, larry. it is absolutely getting worse. so i think that when congress moves forward with a solution we're going to have to look at how do we address these type of weapons in urban and suburban environments particularly. because what we're looking at in montana is not quite the same as what we may be looking at in chicago or places around the nation. >> cynthia -- >> what do people need them for in montana? what do people need them for in montana? i grew up in alabama, in deepest, reddest alabama. my father loved hunting. i grew up with shotguns and rifles in the house. he never -- it was a rural area. he never felt the need to have an assault weapon.

the deer weren't armed. so why do you need an assault weapon? i don't understand -- [ overlapping speakers ] >> i did not say assault weapon. >> why do you need one? >> i did not say an assault weapon. what i'm saying is when you're putting a solution in place we're still going to have to be mindful or the compliancy in chicago and new york city versus people in the big west. people such as residents in montana or the dakotas. we're going to have to be mindful. i'm not saying i'm defending people having assault weapons. those are weapons of war and they too often get in the hands of people that hurt folks throughout america versus being used for what they were designed for. so we just have to be smart about this. >> lenny, why can't we have stronger background checks, better integration of background checks between federal and states and the background checks not only include what goes on in the gun shows but all private gun sales? why can't we have background checks that are much more specific and better and deeper

regarding mental illness? and then put the mental ill people back in the institutions? what's wrong with that? the nra even opposes that as far as i know. i don't get why they do. >> and larry, i think they're wrong for that. i think we should absolutely put those type of measures into place. these are weapons of war. and even the bottom line is, even a gun is lethal. even the most basic of gun is lethal. and therefore you have to make sure you have measures in place particularly in the 21st century where the country is so connected that we make sure that there are measures in place that people can be safe, that people can be rational when they have these weapons. >> but cynthia, i got to tell you. with the views that i've expressed this evening and i've expressed them in this whole gun debate, i am getting tweets that are just killing me. people say kudlow, you don't believe in free markets. you don't believe in free market capitalism. because you don't believe the second amendment. i do believe in the second amendment, cynthia. i believe in hunting. i believe in rifles. i believe in handguns.

but people want it all. they want it all. why should they have it all? when did we ever say there could be no restraints? >> there are restraints on every single right in the bill of rights, larry. there is not a single right that is unrestricted. we don't get to live in a country together in a democracy and everybody do exactly what you want to do. you know, the people that you are hearing from, though, don't represent the majority of gun owners. they certainly don't represent the majority of hunters. >> that's what i think. >> that is a small percentage of people. but they are very, very vocal. >> kathryn, talk to me for a second. you're a libertarian. where do you come out on this? do you think as a libertarian, freedom. i'm for freedom. no government in this, though. do you think second amendment rights should cover everything?

the ought mat ex, tautomatics, n shows. where do reason and the libertarians come out on this? >> your guess is absolutely right there are no rights that exist without restrictions. as much as i would like to have one i don't have a tactical nuke in my backpack, right? so we're already accepting some restrictions there. but at the same time stuff like these school shootings, you see them more in the news. it feels like it's a big deal. but these are actually anomalies. the vast majority of people who own these guns, these weapons of war, don't harm anyone else in them. i think that's where you draw the line. you draw the line at people can do whatever they want as long as they don't hurt someone else. most gun owners don't hurt somebody else. >> cynthia what do you make of that? with these automatic weapons i'm not sure i can buy into that. what's your take? >> no, it is too easy for them to fall into the hands of the people who will hurt somebody. the connecticut the guns that the connecticut shooter apparently used were legally purchased by his mother. so she owned them legally. but the first he shot her.

and then he went and slaughtered a bunch of children at an elementary school with them. so some weapons simply should not be in civilian hands. or they ought to be very, very tightly restricted. >> if a nut is going to do a heinous thing like this, at least not have 100 bullets you can spray around, okay? you could limit the death. you could limit the murder on that. at least that. i don't know. we're going to continue. i'm going to get more bad e-mail. i'm sorry. i'm going to get more bad tweets. i can't help it. i just believe we should have freedoms but not totally unlimited freedoms on guns. lenny mccallister, thank you very much. cynthia tucker, thank you very much. let's turn briefly from guns to stocks. bullish week for the stock market. dow is up 53 points. let me ask this. are markets finally divorcing themselves from their washington obsessions? is the economy better than you think? keith believes it is. how about facebook? up 10.5% for the week. makes pretty good money there. we're going to get an expert's

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to read and consider carefully before investing. with investment information, risks, fees and expenses we asked total strangers to watch it for us. thank you so much. i appreciate it. i'll be right back. they didn't take a dime. how much in fees does your bank take to watch your money? if your bank takes more money than a stranger, you need an ally. ally bank. your money needs an ally. tonight the controversial new movie zero dark 30 opens nation-wide. it's a controversial movie but the good guys win. now we have a whole bunch of senators kibbitzing on the flick. and also this evening, did you get your paycheck today? did you notice something missing? the middle class payroll tax

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the spending cuts sequester is come together department of defense. leon panetta not a happy camper about that. his likely replacement, chuck hagel, a dod budget cutter as far as we know. i'm wondering how this whole exercise is going to affect national security. here now is retired u.s. army general barry mccaffrey, military analyst for nbc news. general mccaffrey, welcome back. about $55 billion this year. can it be cut without compromising our national security, sir? >> it certainly will be an inefficient way to run a railroad. for god's sake there's only seven months left in the fiscal year. so leon panetta will go shopping with 2500 investment accounts and try and pull stuff out, not people. too late to do that. so they've got to go to the defense industry and tell them look we're not buying that many items this year.

it's a lousy way to defend the country. >> well i'm sure you're right about that. but looking at the longer term issue here, the sequester itself is a ten-year issue. here's a question from one of the things i read today. why do we have a $70 billion military budget in europe? do we really need all those bases in all those resources? $70 billion. >> well, all these are legitimate policy debates. and i think in the coming four years, ten years we're going to have to restructure, pivot toward the pacific. we've got to modernize naval and air power and make sure we stay two generations ahead of the chinese so we don't have mischief in the far reach of the pacific. all these are debate points. but they shouldn't be decided on the fly with budgetary cuts. >> do we need 800,000 civilian employees in the pentagon? >> well, a quick answer is i don't know. i think when you look at that

d.o.d.colossus, 2.4 million men and women in the department of defense. it's a giant operation. on the other hand, larry, it's 4.7% of gnp. that's the lowest percentage of national treasure in any of our so-called country's wars. so i tell folks, you run an operation in iraq that was running $12 billion a month. afghanistan was $10 billion a month. we burneded up a lot of resources fight twog wars over the last decade. >> all right so just on that thought get some views from the panelists. we're running those wars down. will they stay down, general mccaffrey? i know some saving is already built in. but down the road in terms of support personnel, in terms of investment in various weaponry and approaches and so forth, maybe that's the place for the savings right there on top of the savings in europe. >> oh, i think there's no question that as we turn off this war in afghanistan i think

we're going to largely leave. i'd be astonished if we have any significant footprint there much beyond 2014. so that's a substantial load off the people and the resources of the department of defense. iraq was the same thing. our presence in europe's more complicated. the europeans like us there. by the way, we're closer to our target areas in the middle east from germany than we are from fort lewis, washington. so presence in europe is a separate issue, needs to get talked through, but willy nilly coming home to fort riley, kansas may not be a good idea. you have to buy the navy and air force to get your military presence deployed again. >> keith boynkin, we are going to have a sequester. i think it's coming down because they're not going to make a deal. >> i agree. >> keith, do you have any problem with including remember it's defense department. homeland security. it's tsa.

it's not just d.o.d. >> i think we can have savings in ever department of government including the defense department. dwayne eisenhower, general eisenhower once warned about the creeping encroachment of the military industrial complex. we've had two wars for the past ten years. those wars are now coming to an end. there should be some sort of peace dividend out of that. historically there's been a great deal of waste in the defense department. $1200 toilet seats and $500 hammers. there clearly has to be some ability to make some significant cuts in the defense department. >> on the other hand, the republican party is very badly split on this. and in the main the republican party wants to redo the cuts in the sequester because they don't want the military cuts. now, is that because of case street lobbying? is that because of contributions to campaigns? or is that because we really can't cut anything in d.o.d.? >> you have the two groups. you have folks who don't want to raise taxes and you have folks who certainly don't want to cut defense. certainly don't want to cut defense below the level maybe 4%

of gdp which they think we need to be long term to have the power projections global military power. those are the two forces going against each other. i think people are concerned about the defense for the most part think we will be cutting too much if we keep the sequester. i think we'll get the sequester and that will be the new baseline. i think we have to work to add back in defense spending from somewhere else. i think it's coming. >> it's comes because of the dysfunction of washington. a deal will not be made. and they've got a certain deadline. it's march 1st is it not? last day in february? >> yeah, right. we're not going to default on the debt. and they're also not going to accept this one for one tax hike plan that the president has. so what's the other option? it's the sequester. >> it's the sequester. general barry mccaffrey, thank you, sir. we appreciate it. >> good evening being with you, larry. a controversial movie opens nation-wide today. and it pur ports to show the hunt for osama bin laden. julia borsten has much more on

zero dark 30. sony's zero dark 30 is expanding from just a handful of theaters to nearly 3,000 theaters nation-wide. bolstered by five oscar nominations including best picture. a scene in the beginning of the movie suggests torture was key in finding bin laden has sparked concern on a number of fronts including what kind of access the cia granted filmmakers. now three senators, senators feinstein, mccain and left in, are demanding that the cia release details about how torture was used in december those senators criticized the film and sony for being inaccurate. now they're asking what information the cia shared. larry? >> well, with all this controversy and the cia and the senators julia, do you think people are going to go to this ning thing? will it sell box office? >> i saw the movie. i thought it was a really interesting, well done movie. i think all the controversy is only going to drive more interest in it. people are going to want to see what all the fuss is about and going to want to see whether or

not this is true or not. but i think going to go to the film understanding it's a piece of fiction. we'll see what the senators find out about its accuracy. >> many thanks, julia borsten, appreciate it. let's bring back our free market friday panel. kathryn, did you see this movie yet? >> i have not. but that doesn't stop anyone from talk about it. so let's go ahead. >> i have not seen it, either. we're going to talk about it. cia is in the middle of this controversy. john mccain and a couple of others hated water boarding. water boarding is a part of this story when the movie basically says from the water boarding at guantanemo bay they did pick up clues and names and names led to names and it all led to osama bin laden. what's your take on that? water boarding, gaunt guantanemo. >> i think it's weird that the debate has shifted on the hill from this movie is inaccurate to this movie is a little too accurate. where did you get your information? and i think that's maybe it's just a smoke screen.

maybe it's just sort of senators and congressmen throwing up kind of we can have a hearing, we can have an inquiry so they don't have to address the substantive concerns. there are people with stakes in the debate. but most senators and congressmen don't want to talk about torture. >> i think that's right. keith, the cia says another criticism they say is it it was a team effort. not just this one woman. we all buy into that. cia however issued a statement about the water boarding and the enhanced interrogation techniques to use their phrase. they don't come out with a view. they say maybe yes, maybe no. i have been a strong supporter of enhanced interrogation techniques. i think it helped get osama bin laden. what's your take? >> i oppose the enhanced interrogation as it's called. i think torture is a bad thing for the united states to practice. we should be a leader in terms of demonstrating human rights practices across the world. and if we engage in torture, that encourages other countries to engage in torture with american troops or americans held captive anywhere across the

world. people like john mccain and diane feinstein are absolutely right in being opposed to this. i don't know about whether the film is glorifying torture or not. but it's something we don't need to be doing as society. >> don't our enemies use torture? wasn't 9/11 torture? isn't then have been our enemies constantly used torture including the killing of americans not to speak of american reporters? >> enhanced interrogation techniques? that's not necessarily water boarding. and if there are terrorists out there who are worried that they get captured they maybe water boarded? that's fine if they believe that. i have no problem with the purposeful ambiguity the cia has given. but the fact remains i think it is highly contentious whether they used water boarding had any role in getting osama bin laden. >> i agree with you on that. >> so the fact that we've created this movie, which should be one of the great moments of my life to watch that when the president came out there and said we got him? and then to kind of besmir much it by maybe putting in something that didn't happen or actually

lead to getting him? hollywood cannot do sort of pro american feel good movie about what i think -- they can't -- they can't do this movie. >> are you agreeing with me for the first time on "the kudlow report"? i can't believe this. >> the movie he wants to see is like a bunch of people with flags and apple pies. >> by the way, the president who campaigned on closing down guantanemo did not close down guantanemo. still has not closed down guantanemo. and i am going to bet that there are some enhanced interrogation techniques going on in guantanemo. and i'm going to make a second bet, they are being made by who's, the cia. i don't have a problem with that, by the way. but that i think is going on. >> well, we're also not going to find out about what exactly happened guantanemo because another broken executive promise is -- >> you want increased terrorism in spice and guantanemo? i want opaqueness. i don't want to know what's

going on. >> i want more killer robots in the skies raining down. >> the droneman. the drones can't get you to talk. keith boynkin, kathryn mangeward and jim pethakukus. the dow up 53 points today. hot stocks. we're talking ford and facebook. they led the way. even with the mess in washington. i'm kind of still leaning bullish on this whole story. ♪ [ male announcer ] how do you turn an entrepreneur's dream... ♪ into a scooter that talks to the cloud? ♪ or turn 30-million artifacts... ♪ into a high-tech masterpiece? ♪ whatever your business challenge,

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and a 30-tablet free trial. all right. let's do some stock market work. this week dow is up 53 closing at -- so far this year the nasdaq -- the blue chip was up 3%. pretty good action. let's bring in our friend phil orlando chief equities strategist at fed rated investors. it's an awfully bullish market, phil. i just want to have some fun, pull out some individual shares. one story today, ford motor company, what are they hiring? 2,025 new white collar workers. their stock was up, let's see, 3% for the week. that's pretty good. why is that? what's going on here? >> two of our favorite areas, larry, are the housing market and auto market. regardless of what you think economy is going to do, we think those sectors will do well.

a hybrid ford ace great hybrid choice for both of the sectors. their most important area is pick pickup trucks. the folks that are buying them are the contractors building the houses. they're benefitting significantly from both of the positive trends. >> what about the good rally in facebook? facebook has taken a lot of heat ever since the ipo which was bungled but a lot of investors screwed. insiders did well but they got screwed. facebook up 10.5% this week. what do you make of that? >> you're exactly right. the initial public offering couldn't have been handed worse. we thought the deal came out way too high. our concern was that it would find a bottom somewhere in that 10 to $20 neighborhood. it didn't get quite down that low. but the company is now starting to put some better numbers on the board. management is doing a better job of managing the process. and the stock is getting back to what should represent better longer term fair value. >> and this boeing travesty is

probably unfair to call is a travesty. but every day you get some bad thing happening to the boeing 787 dream liner. do you buy that stock on the dip because it's a great long term company? or do you just stay the heck out of it? >> i think that's exactly right. this is a technology that's going to work longer term for the travel industry. and i think that boeing is on the cutting edge with a very good product. now there are some bugs they've got to work out. there's no question about that. they're going through those growing pains. but i mean if you get a significant pull back based upon some hiccups, i think longer term that's probably a very attractive buying opportunity. >> now how about this headline? u.s. stocks enjoy their biggest weekly inflow since 2008? $18 billion according to the people at lipper. is this reflecting a change? is retail coming back into the stock market? because if they are, that could drive this baby up several thousand points on the dow. >> you're right. there's a couple of things at play. one is that we finally got at

least a positive, a half positive result out of the fiscal cliff situation with regard to the tax discussions over christmas and new year's. but the other thing is the fixed income market. that larry over the last couple of months we've seen benchmark ten-year treasury yields go from about 140 to 190 in terms of yield. so what that's going to do is drive some disintermediatiation into the equity market. you can still get a dividend yield of 2.225% in stocks and retail investors are starting to recognize that they can actually lose money in treasury securities. and there's actually some attractive valuation in stocks. >> and they're losing money as gold plunges. just in the last few seconds, in the last few seconds, phil, what's your investment strategy? are you playing it long or short? >> right now we are cautious based upon this upcoming spending cliff discussions in washington in february and march. but once we get through that, we think we've got some pretty clear sail into the end of the year. >> all right.

clear sailing into the end of the year. love that. phil orlando, thanks very much. happy new year to you. >> thanks, larry. millions of americans opened paychecks today and got a nasty surprise. they were smaller all thanks to the end of the payroll tax holiday. but is this cause for concern or is it the end of just a gimmick that never worked in the first place? we're going to debate that next up. ck's cereal. [ jack ] what's for breakfast? um... try the number one! yeah, this is pretty good. [ male announcer ] over a third of a day's fiber. fiber one.

with multiple lacerations to the wing and a fractured beak. surgery was successful, but he will be in a cast until it is fully healed, possibly several months. so, if the duck isn't able to work, how will he pay for his living expenses? aflac. like his rent and car payments? aflac. what about gas and groceries? aflac. cell phone? aflac, but i doubt he'll be using his phone for quite a while cause like i said, he has a fractured beak. [ male announcer ] send the aflac duck a get-well card at getwellduck.com.

. a lot of americans got paid

today for the first time this year. they'll notice the smaller number than the last check of last year, about 40 bucks less for somebody earning $50,000 a year. but is it really going to hurt the economy? let me give you my quick take. you know what, folks? temporary tax cuts or temporary tax rebates never work. never. milton freedman taught us that decades ago. because they were temporary folks did not use them to spend or invest. they used it to pay down debt or saved. nothing wrong with that. but the economy didn't bulge all of a sudden just because of a temporary payroll tax cut. we really haven't budged off the 2% growth trend. you know what works? permanently lower tax rates. permanently lower rates. that would have boosted growth. we didn't get it. you knew we wouldn't get it. and i don't think you out there are also surprised. let's bring in our free market friday panel. keith, you love these temporary tax cuts. you just love them. >> i don't love temporary tax

cuts. i think that the payroll tax cut is and was a good idea because it does get money into the hands of everyday workers. the idea that you raise i think has some validity to it. obviously as well. that if you give people a temporary tax cut they may not use it for spending. >> that's your first concession to me in the new year. >> that's true. but you're talking about investors, yes, people who who have a lot of money who think that way who know what the tax rates will be from one year to the next will do that. people just getting a paycheck every two weeks may not think that way. they just see more money in their paychecks so they will go out and spend that money. i think the unemployment benefits are more important than the payroll tax cut. i'm glad that got included in the deal. but the payroll tax cut is still a big deal. my biggest concern is about the social security implications not about the tax cut. >> they blew a big hole in social security. kathryn i ask you the same thing. i think people are smart, not stupid. they knew this was going to be temporary. and they therefore did not go out and binge on purposes or investments or whatever. on the other side nothing is going to happen now.

not going to matter. >> i think you and milton freedman can be right and people can still be stupid. people look at their paychecks and they say there's a little more money there. i don't know how that got there. i don't know how long it's going to stay. >> you don't have any confidence in the wisdom of the ordinary person? >> i have confidence in the aggregate wisdom of the masses. not the average joe. it depends on what you mean by did this temporary cut work? did it work to stimulate the economy? probably not. did it give people back a little bit of their money? >> i think they used to it pay down debt. didn't even change consumer spending rates. >> listen. the temporary tax cuts that were part of the stimulus, they went back and studied those. they didn't work. the temporary tax cuts don't work. most of that money gets saved. what works are long term tax cuts. what really hurts are long term tax increases which we are getting this year. we're getting both on labor income and just as bad on capital income. permanently higher taxes. and that's going to be the drag on the economy. >> the other big drag is

uncertainty. people have no idea what's coming down the pike. not only on this $40 scale but also in terms of massive decisions by congress. they can't seem to make. >> i think people are making a mistake and confusing -- >> i don't know what tax cut you're talking about. because i think most of it paying hire taxes that sounds like a tax hike. >> the so-called bush tax cuts that got extended that's a tax cut. that's what i'm talking about. i still think, though, there's a difference between the way the investor class thinks, the people who watch "the kudlow report" every night and the way the ordinary americans who aren't watching "the kudlow report" who are just receiving their paycheck. they think differently. >> evidence doesn't back that up. >> i think most americans know when the payroll tax cut is going to expire or anything like that. i think they just get a check and they're happy they got more money or they're not happy they got less money. >> george w. bush had two tax rebates, temporary rebates. he had one in 2001, it didn't work. >> he gave you a check, though. >> one in 2008. it didn't work.

i remember in the 1970s, nixon, jerry ford, jimmy carter, they all wanted temporary tax rebates. that was the idea du jour. never worked. >> they just gave you a big check and said this is a check from the federal government. go spend it and do whatever you want with it. it's different when could you give people on a weekly or bi-weekly base is throughout the year. >> they tried that. they used behavioral economics and tried to change how they structured it in 2009 and it had the same bad result. it's not just investors. >> you know what i think would have done better? spending cuts. i'm going to be a complete contrarian here. personal reductions in spending the size of government, the threat of government to our economic liberties. that includes the deficit. [ overlapping speakers ] >> still today if you had permanent spending reduction i'm telling you that would boost the economy. >> so the thing about spending cuts is you do have to make decisions. you are going to have to fire some people who work for the federal government.

you are going to have to do less with the u.s. military. that doesn't mean they're a bad idea. to my mind they're a great idea as long as we're having clarity, permanence. permanent tax cuts and spending cuts together. >> how about rules? are you in the rules-based camp? >> no discretion. >> 20% of gdp that's a rule. this should have a rule. >> i like rules-based monetary policy and fiscal policy. >> i don't like the idea of decreasing revenue at the same time you're paying for new wars and new expenses. you have to -- [ overlapping speakers ] >> if you were to cut the existing tax system? if we would have just done nothing it would have produced $2 trillion in additional revenue and brought revenue share to gdp up to historical average. >> according to who? >> the budget offers. >> 99% of george w. bush's tax cuts are now permanent. you've got to give him credit. >> give president obama credit.

he extended them. >> he's the one who did the last half percent. keith, kathryn, jim, we really covered the waterfront today. we're all going to go and see that movie "zero dark 30." thanks for watching. i am larry kudlow. we'll see you next week.